Third energy company declares bankruptcy following fallout from Texas snowstorm
Griddy Energy, the Texas energy provider that encouraged customers to quit service during recent snowstorms, has become the third energy company in the state to file for bankruptcy due to a grid disruption.
During the hearings, Texas lawmakers heard that producers and utilities could face bankruptcy.
During the instant frost, temperatures fell below -10 ° C in areas where they would rarely drop below 5 ° C. This froze gas supply lines and machinery, in turn limiting the supply to state power plants. The wind turbines got stuck and 45 GW of generating capacity was taken out of service during the storms. Meanwhile, the cold has caused an increase in demand on Texas energy systems.
The Electric Reliability Council of Texas (ERCOT) regulates the production and management of energy in the state. Seven of its board members have resigned since the crisis and the company fired its CEO. Leaders have now started to testify before lawmakers about what went wrong.
Former ERCOT CEO Bill Magness recently testified before the Texas House of Representatives. He told lawmakers that at one point, payments owed to producers reached $ 10 billion a day. An ERCOT notice said the company currently owes electricity providers $ 1.3 billion for the electricity it distributed during the crisis.
In turn, ERCOT says it cannot pay this to producers until the utilities pay their bills to the company. In Griddy’s case, the company is waiting for payments from its customers. Many of these customers say they cannot afford the high cost of electricity passed through the chain in February.
Griddy, Just Energy and Brazos Electric Power bankrupt in fallout from storm
ERCOT blocked Griddy from the Texas energy market after the latter company failed to pay its bills. In its filings with the United States Bankruptcy Court for the Southern District of Texas, Griddy Energy said its debts were between $ 10 million and $ 50 million.
The company owes ERCOT $ 29 million for energy costs, by far its largest debt. By comparison, the company has listed assets of between $ 1 million and $ 10 million.
During storms, Griddy encouraged customers to “find a short-term plan” for cheaper power supply “if the forecast and prices are too extreme for you right now”.
The company charged a subscription fee for its service while otherwise it only charged the wholesale energy tariff. As the wholesale rate reached its cap of $ 9,000 / MWh, the utility was unable to mitigate the charges and passed them on to consumers.
This then left some clients with extreme bills. A Houston resident, living in a one-bedroom apartment, received utility bills of $ 4,677 for energy over a week.
Michael Fallquist, Managing Director of the company, blames ERCOT, saying: “The actions of ERCOT have destroyed our business and caused financial damage to our customers. Fallquist declined to attend the hearings.
Lawmakers, regulators, producers and customers looking for blame
On its website, Griddy shared an explanation for its Chapter 11 filings. Below, the company posted screenshots of positive testimonials and reactions to the news of its bankruptcy.
At the same time, the company faces a possible class action lawsuit from its former clients. This alleges that Griddy broke the Texas Deceptive Marketing Practices Act.
Derek Potts of Potts Law Firm in Houston, representing the class action, said, “Since the filing of the proposed class action lawsuit on February 22, we have heard hundreds of Texans across the state tell us about excessive and exorbitant bills, efforts to collect and withdraw personal bank accounts and credit cards by Griddy’s representatives, sometimes resulting in overdrafts on accounts.
“Although Griddy is now suspended from operations, we are concerned that these attempts to cause financial damage may continue and that the internal records that support our allegations of deceptive practices on the part of the company will be destroyed.”
Ensuring the sustainability of the Texas energy network
Just Energy Group and Brazos Electric Power Cooperative also filed for bankruptcy last month. Although these companies used more traditional utility company practices, they went through much the same experience of the crisis.
Brazos, the state’s oldest energy cooperative, racked up $ 2.1 billion in bills during the week-long cold snap. For comparison, the company bought all the electricity it supplied in 2020 for $ 774 million.
In a statement to bankruptcy courts, Executive Vice President Clifton Karnei said: “Brazos Electric suddenly finds itself in a liquidity trap that it cannot resolve with its current balance sheet. The level of charges could not have been reasonably anticipated or modeled.
Just Energy, a Canadian company, also filed for bankruptcy in Texas after recently completing a recapitalization. The company received $ 250 million invoices from ERCOT and has since borrowed $ 125 million in emergency financing from Pacific Investment Management.
In addition, ERCOT has ordered the construction of two energy storage plants in Wärtsilä in order to increase the resilience of its network.
Update 03/17: The Dallas Morning News reported that Griddy’s clients will have their bills written off as part of ongoing negotiations between Griddy and the Texas attorney general’s office.
In a statement, Attorney General Ken Paxton said: “Griddy and my office are engaged in ongoing good faith negotiations in an attempt to provide further relief to Griddy customers who have already paid their energy bills related to storm.”